Is economic policy uncertainty detrimental to sustainability? Evidence from Asian countries

Despite the widespread recognition of the significance of long-term sustainability, there is as yet a relative paucity of evidence on what factors account for sustainability performance. In an effort to close the apparent gap in knowledge, this study contributes new empirical evidence to this discussion by considering the role of economic policy uncertainty. Inconsistent economic policy may undermine sustainability efforts as it creates a more complex and volatile operating environment, which, in turn, affects the behaviour of economic entities in the system. Drawing primarily on environmental management literature, this study aims to investigate the relationship between economic policy uncertainty and sustainability performance in the Asian regions between 2012 and 2020. With country-level annual data, this study estimates the model using a system generalised method of moments approach to address the possible biases resulting from serial correlation of random errors, simultaneity, and unobserved heterogeneity. Therefore, the estimates of this study will be consistent and asymptotically unbiased. The empirical analysis reveals that sustainability performance in Asia is adversely affected by economic policy uncertainty. The sustainability sub-components results are broadly in line with the main results that a higher economic policy uncertainty index is detrimental to the protection of natural capital and the development of social capital. This study concludes that ongoing economic policy uncertainty and disturbance could have serious repercussions for local economies, thereby hindering sustainability development. Overall, the findings of this study suggest that the establishment of sustainability development frameworks in areas of climate goals, social justice, and good governance would need to pay close attention to uncertainty in economic policy.